Germany: Going Public In Germany

Last Updated: 4 June 1997
The German Federal Reserve Bank (Deutsche Bundesbank) reported in February 1997 that the number of German stock corporations has increased from 2.147 (end of 1980) to 4.043 (end of 1996). In 1996 eleven Initial Public Offerings (IPO) with a total value of DM 21.4 billion were offered. This all-time high figure however, is characterized by the IPO of Deutsche Telekom AG which covered 96 % of that amount.

The major goal of an IPO is to finance future growth and expansion through equity. Since many German IPO's are part of a restructuring of family businesses, the present (family) shareholder(s) want to - inter alia - retain control, shift and diversify business risks, implement a viable succession scheme and motivate employees by implementing an employee stock ownership plan.


Before going public a comprehensive examination of the material financial, legal and tax effects of the contemplated transaction must take place. For this purpose, a going public concept should be drawn up and implemented together with the management and the present major shareholder(s). The following major legal areas should be covered in a going public concept:

1.1 Conversion Of The Going Public Company/Restructuring Of The Group

The going public company must be organized as a stock corporation. If this is not the case, a conversion into a stock corporation is necessary. The new German Reorganization Act and Reorganization Tax Code (UmwG und UmwStG) effective from January 1, 1995 onwards now offers the opportunity to implement tax efficient reorganizations.

Further, a restructuring of the going public company's group often is necessary in order to attract potential investors with a transparent group structure.

In connection with the conversion and/or restructuring, the following issues should be covered:

  • book value conversion or going concern value conversion in order to realize book reserves required e.g. to cover a larger initial share capital;
  • tax effects of the conversion and the subsequent going public to the present and future major shareholders;
  • tax efficient structure to circumvent taxation on capital gains resulting from future sales of the newly issued shares;
  • structuring of share capital (i.e. ratio stated nominal share capital: premium);
  • tax efficient structuring of group by implementing domination/profit and loss pooling agreements prior to going public.

1.2 Preservation Of Control Of The Initial Shareholders

The initial shareholders of the going public company normally have a strong interest in preserving their existing control of the going public company. Depending on the number of initial shareholders, the following tools are available for this purpose:

  • vote pooling agreements between the initial major shareholders;
  • setting up of a holding company;
  • issuance of registered common stock with restricted transferability to the initial major shareholders;
  • issuance of non-voting preferred stock to new investors instead of common stock;
  • granting of a right to appoint supervisory board members to the initial shareholders in the Articles of Incorporation;
  • reducing the majority requirements set forth in the German Stock Corporation Act for certain resolutions (i.e. simple instead of 75 % majority of the present votes).

1.3 Type Of Security To Be Issued

The fundamental question what type of security (common or non-voting preferred stock) shall be issued largely depends on the scope of the security issue and the contemplated control structure (see item 1.2). Further, alternative financing instruments (e.g. participation rights, convertible and warrant bonds) should be checked.

1.4 Determination Of The Par Value

Since 1994, the majority of IPOs shows a par value of DM 5.--. This creates a greater incentive for small investors and therefore boosts the tradeability of the newly issued stock.

1.5 Future Public Offerings

The Articles of Incorporation should include the right for future public offerings, e.g. by setting forth (further) authorized capital. If the IPO consists of non-voting preferred stock, the Articles of Incorporation should provide for the issuance of equivalent further non-voting preferred stock up to the maximum amount permitted by the German Stock Corporation Act, i.e. equal to the stated nominal share capital.


Prior to going public, the company and the lead underwriting bank must conclude an underwriting contract which should include, among others, the following points:

2.1 Determination Of The Type Of Securities To Be Issued

The underwriting contract should establish the type of stock or other securities to be issued when going public.

2.2 Market Segment/Stock Exchange Location

The underwriting contract should set forth whether the securities shall be introduced in the Official, the Regulated or the New Market. In this respect, the different legal preconditions for admission must be observed. Further, it should be determined if the securities shall be listed at only one or several stock exchanges.

2.3 Admission To Stock Exchange

The lead underwriting bank further obligates itself in the underwriting contract to draw up the application for admission to the stock exchange and to submit it to the respective admission authorities. From a legal point of view, the regulations contained in the Exchange Admission Ordinance must be observed hereby.

2.4 Regulation On Internal Prospectus Liability Between Underwriting Bank And Company.

It is standard practice for the sales prospectus to be signed by the underwriting banks. The underwriting banks are therefore liable vis-a-vis the investors for the correctness and completeness of the particulars given in the prospectus. In the underwriting contract, therefore, the Company regularly indemnifies the underwriting banks from any kind of prospectus liability.

2.5 Obligation To Subscribe/Emergency Clause

The lead underwriting bank or all underwriters obligate themselves in the underwriting contract vis-a-vis the company to subscribe to the new shares in order to subsequently place them on the stock exchanges named in the underwriting contract. Simultaneously, the underwriting contract shall specify that the obligation to subscribe to the shares shall not exist if extraordinary events occur between the date of conclusion of the underwriting contract and the envisaged date of subscription which render the execution of the contract unacceptable for the syndicate of banks.

2.6 Commission Agreement

The underwriting contract shall contain a detailed commission agreement. Generally, the amount of the commission ranges between 3% to 5% of the issuance volume.


The sales prospectus normally is signed by all underwriting banks. There exists a stock exchange prospectus liability with respect to the introduction of securities on the official market and the regulated market.

Due to the strict prospectus liability, attention should be paid that at the time of the drawing up of the prospectus, the legal and economic relationships of the company are determined exactly. Furthermore, the prospectus is to be legally examined prior to its publication in order to avoid any prospectus liability risks.


In the interest of the greatest possible placement of securities, there are several credit institutions regularly participating in an underwriting. The relationship among the underwriting banks, in particular the following points, are to be regulated in a syndicate agreement.

4.1 External/Internal Syndicate

In case the lead underwriting bank concludes the underwriting contract also in the name and on behalf of all other underwriting banks, every underwriter enters into a direct contractual relationship with the company; this constitutes an external syndicate.

In case the lead underwriting bank concludes the underwriting contract with the issuer solely in its own name, but for the account of the other underwriting banks, rights and obligations under the underwriting contract arise only for the lead underwriting bank. With respect to the internal relationship, the lead underwriting bank then concludes individual contracts with the other underwriters. This is usually done by way of exchanging letters. The advantage of such an internal syndicate consists in the fact that the lead underwriting bank may form or change the circle of the underwriting banks even shortly before or after the conclusion of the underwriting contract with the issuer.

4.2 Regulations With Respect To The Syndicate Agreement

The members of the syndicate form a partnership under the German Civil Code. Since, however, the statutory provisions are essentially inappropriate for governing the relationships between the underwriting banks, differing provisions have to be agreed to and contained in the syndicate agreement. For example, it should be specified that

  • the securities taken over are exclusively owned by the respective underwriting bank pro rata with its participation share in the underwriting (no joint ownership),
  • each underwriting bank can dispose of its securities upon its sole discretion,
  • the lead underwriting bank is sole lead underwriting bank.

4.3 External Liability Of The Underwriting Banks

It is common practice to regularly limit the liability of the underwriting banks pro rata to their respective underwriting share. Each underwriting bank therefore only is obligated to take over issued securities in proportion to their underwriting share. It must be taken into account, however, that pursuant to decisions of the German Federal Supreme Court, the joint and several external liability cannot be restricted if the syndicate of banks has accepted the stock within the framework of an indirect pre-emptive right (Sec. 186 para 5 German Stock Corporation Act) after the execution of the capital increase has been registered with the Commercial Register.


Companies newly introduced on the stock exchange regularly have a considerable need of advice. This for example applies to the preparation and convening of general meetings.

After the introduction on the stock exchange, the investing public is to be constantly informed of the economic situation of the company by means of business reports, interim reports, letters to the stockholders, press releases and press conferences. From the legal point of view, for example, it must be checked whether certain information has an impact on the share price and must be disclosed by the listed company pursuant to the German rules on "ad-hoc publicity".


With respect to successful introductions on the stock exchange, a further placement of securities on the stock exchange is often taken into consideration even in the medium term. Although with respect to subsequent issuances the questions put under item 1 do not arise any more, there still exists a demand for legal advice and legal regulations as to the conclusion and execution of the underwriting contract, the drawing up of the sales prospectus as well as the conclusion and execution of the syndicate agreement (items 2 to 4 above).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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